U.S. government defends Chapter 9 bankruptcy in Detroit case

Oct. 11, 2013

Written by

Detroit Free Press Business Writer

The U.S. Justice Department today defended the constitutionality of Chapter 9 bankruptcy after several Detroit creditors challenged the law in a bid to derail the city’s bankruptcy filing.

The U.S. government filed a memorandum in Bankruptcy Court rejecting challenges to Chapter 9 from several creditors — notably including Michigan Council 25 of AFSCME, Detroit’s largest employee union.

The federal government’s 26-page filing argued that Chapter 9 “scrupulously respects state sovereignty and the principles of federalism,” presenting Supreme Court case law and legislative context supporting its argument.

“And Chapter 9 does not interfere with the fundamental political process, the individual citizen’s right to vote, through which those officials can be held accountable for providing the framework and authorization under which the debtor entered,” the U.S. argued.

The government did not address whether the city of Detroit is eligible for bankruptcy or whether it should be allowed to enact pension cuts, a key point of contention.

The filing was signed by U.S. Assistant Attorney General Stuart Delery, U.S. Attorney Barbara McQuade and J. Christopher Kohn, director of the Department of Justice Civil Division Corporate/Financial Litigation.

U.S. Bankruptcy Judge Steven Rhodes will hear arguments on whether the city is eligible for bankruptcy at a series of hearings starting Tuesday.